Personal Injury Fraud

Mary Robinson Excerpts

Wednesday 18th November 2015 Westminster Hall

[Karl MᶜCartney]

I agree entirely with my hon. and learned Friend. In fact, some insurance companies are now acting more coherently, shall we say, and working with each other rather than always acting in competition. They have realised that the problem is not going to go away and has in fact got a lot worse.

The three most common strands of third-party fraud are: accidents fabricated or deliberately staged purely with a view to submitting false claims for compensation; fabricated personal injury claims where a genuine accident has occurred; and genuine accidents and injuries, but with aspects of the claim being fabricated or exaggerated.

[Mary Robinson (Cheadle) (Con)]

I thank my hon. Friend for securing this debate. Does he agree that not only are the fraudulent claims he describes made at the cost of law-abiding motorists, but they cause a great deal of distress to the innocent victims, who see escalating charges and escalating amounts being claimed against them?

[Karl MᶜCartney]

Indeed. I concur with my hon. Friend; she is entirely correct. Later in my speech I will describe the various other aspects that cost the nation, the taxpayer, the Government and organisations involved in this sector.

Fraudulent injury claims cause increasing costs in car insurance for consumers and businesses. The UK now sees more compensation claims for whiplash per car accident than any other western European country. As I have already said, we are known as having weakest necks in Europe. Efforts by the Government have had limited effect, and personal injury claims are now at a record high. In the first quarter of 2015, the number of personal injury claims made through the Ministry of Justice claims portal was the highest on record, with 13% more than in the same period for 2011-12, before LASPO was introduced. Claims data for 2015 so far show that, for some companies, 80% of all personal injury claims received were related to whiplash.

Liverpool Victoria estimates that, in 2015, at least 11% of the average car insurance premiums it provides can be attributed to paying for whiplash claims. That is a significant and unnecessary cost for consumers—our constituents. At Liverpool Victoria, 10% of claims handlers are employed purely to tackle fraudulent claims, at an annual cost to the business of £4.5 million to run the team. Those costs are ultimately paid for by customers, further increasing the cost of car insurance for individuals. Businesses are also affected by rising commercial insurance premiums for company vehicles. For small businesses in particular it is an unwelcome and unnecessary cost.

The Information Commissioner’s Office received 180,000 complaints about nuisance calls or texts in 2014-15—a 12% increase on the previous year. According to research that Liverpool Victoria commissioned in July 2015, each British person—importantly and unfortunately, this includes children—receives an average of 468 nuisance calls and text messages every year. We waste six and a half hours a year dodging calls, deleting texts and listening to phone messages that none of us wanted to receive. One in three reported receiving more nuisance calls and texts than calls from friends and family, and more than 80% of those who receive personal injury calls have never even been involved in an accident for which they could, if they wanted, have made a claim.

Fraudulent claims also have a cost for our GPs and the NHS as a whole. This is an area of great concern, as fraudulent claims are putting additional pressure on an already-strained NHS. Liverpool Victoria research carried out with GPs shows that GPs now see 116,000 people every month that they suspect are inventing or exaggerating an injury to claim compensation, which equates to nearly 1 million wasted GP hours every year. At this point, I will depart from my written speech and say that I may include the Secretary of State for Health in the list of eminent persons I read out earlier, because this is a serious issue for the NHS.

Claims farming generated by rogue solicitor firms and claims management companies is creating high volumes of fraudulent and exaggerated personal injury claims. Aged claims farming is the new norm, and it has increased since LASPO was introduced. Insurance firms have seen a significant increase in claims farming—the practice by which a claimant solicitor or a claims management company targets individuals with nuisance calls and texts to encourage them to make a personal injury claim. It now represents between 20% and 28% of all claims received by some companies each month. In January 2013, before the introduction of LASPO, the figure was 13% or below.

A high volume of farmed personal injury claims are being generated by just a few rogue solicitor firms. Despite evidence being passed to the Solicitors Regulation Authority, this behaviour has not been challenged, but it should be. Although the practice of claims farming is widespread, a minority of law firms are driving the problem: Liverpool Victoria’s analysis shows that more than 41% of suspected farmed claims that it received in 2015 were submitted by just 10 law firms.

Let me turn to the issue of cold calling and vishing. There is clear evidence, as my hon. Friend the Member for Redditch (Karen Lumley) said, that claims management companies and solicitor firms that cold call and text people are targeting vulnerable individuals. Claims management companies target individuals by calling directly from purchased marketing lists. The practice is widespread. Research conducted by Liverpool Victoria in June 2015 shows that the UK public collectively receive more than 60 million nuisance calls and texts every day—equivalent to 43,000 a minute. A significant proportion of the approaches are from lawyers or claims management companies trying to encourage individuals to make a personal injury claim.

Worryingly, the number of claims being made without the knowledge or consent of the claimant is increasing. A range of unlawful tactics are used to obtain and verify the data. In such cases, claims management companies act without formal instruction and the claimant does not sign any documents. Some claims management firms have even forged claimants’ signatures. The practice of vishing insurance companies is rife. As I heard on Monday, the number of vishing calls that London Victoria’s staff receive is rising: in just this year to October, it received more than 3,000 vishing calls.

I believe that the Government need to address the root cause of motor insurance fraud and customer harassment: the excessive cash in the system that creates unwarranted incentives. To deal with the problem, the Government should, first, introduce a minimum threshold for simple whiplash claims and replace cash compensation with rehabilitation, which would deal a fatal blow to those making nuisance calls and the “cash for crash” industry.

Secondly, the Government should ensure that magistrates, district judges and Crown court judges are aware of the cost of fraudulent claims to the nation and the need to take affirmative action, including dealing with uninsured drivers with parity. Why would somebody get insurance if they need to be caught and fined four times in a year to equal the cost of insuring their vehicle?

Thirdly, the Government should remove the civil court aspect of chasing a fraudulent claimant. We need to stamp out this pernicious crime. Only by instructing the Crown Prosecution Service to go after fraudulent claimants actively, backed up by the police, will we do so.

The real kicker of those three simple undertakings is that the vast majority of the voting public—certainly, 100% of law-abiding, insurance premium-paying drivers—would be utterly joyous and would commend us for doing some good in this place and making their lives easier and, ultimately, cheaper.

The challenge is that, as the Association of British Insurers’ premium tracker shows, the average motor premium for the second quarter of 2015 is £367, and it is increasing. Similarly, the number of whiplash claims is showing worrying signs of rising again. The Ministry of Justice’s claims portal shows that it has increased by 6% in the past nine months. There remains excessive cash in the system, which continues to fuel exaggerated and fraudulent personal injury claims, putting upward pressure on motor premiums. Organised and opportunistic crimes such as “cash for crash” continue to put motorists’ personal safety at risk while inflating all of our insurance premiums. Nuisance calls encourage fraudulent behaviour, leave law-abiding drivers vulnerable and mean that the staff of our insurance companies are encouraged—hounded, even—to breach data rules. Bogus data management companies and similar organisations, such as some data marketing companies and claimant solicitors, continue to plague motorists with texts and calls. They need to be regulated as a whole while the compensation culture and the opportunities remain.

According to the ABI, almost 130,000 cases of claims fraud were detected in 2014, totalling more than £1.3 billion—a 4% increase in value compared with 2013. In addition, there were 212,000 cases of application fraud. Between 2009 and 2014, the overall value of fraud detected rose by 57%. The insurance industry detects fraud in less than 2% of claims, but one in nine whiplash claims are fraudulent. The average cost of a bodily injury claim is £10,680, and the overall average for all claims is £2,649. Bodily injury claims make up 9% of the total number of claims, yet represent 51% of the total value of claims.

Many insurers have made it clear to me that they are taking action. Between 2005 and 2013, the number of UK motor accidents fell by 30%, but the number of whiplash claims increased by 62%, a large number of which are believed by the insurance industry to be fraudulent or grossly exaggerated. During that time, the average cost of a bodily injury claim increased by 73%. Indeed, one of Enterprise Rent-A-Car’s largest ongoing costs is the impact of personal injury claims as a result of accidents involving its vehicles. It is its third highest expense after fleet acquisition and personnel costs. Its fleet liability costs have been significantly impacted in recent years by the huge increase in personal injury claims. The growth is driven by low-value claims for soft tissue injuries.

We have a compensation culture problem that has not been dealt with and is not shared by many other European countries. According to Frontier Economics’ whiplash report, whiplash claims in France comprise only 3% of personal injury claims, in comparison with 94% in the UK. In Germany, the number of bodily injury claims has dropped in line with the fall in road traffic accidents. In Norway, most minor injury claims are handled without the involvement of a solicitor. In Sweden, a de minimis threshold means that symptoms must appear and be assessed within three to four days of the accident.

What can we learn from those examples? Whiplash claims are not as significant in other European countries, due to the much more stringent conditions that must be met before a victim can successfully claim compensation for a whiplash injury. In April 2013, 70% of personal injury claims following road accidents in the UK were for whiplash, compared with 30% in France and Denmark, 31% in Spain, 35% in the Netherlands and 68% in Italy.

Certain European countries have implemented a variety of measures to reduce the frequency of claims. In France, the diagnosis of a whiplash claim requires objective proof, based on more rigorous medical testing. Claimants are made to pay for an initial report on the injury. France also requires medical practitioners diagnosing whiplash to be specially trained in bodily injury diagnosis. Its small claims limit, which is greater than the UK’s, allows more claims to be settled without solicitors. I am also sure that it would not allow medical examinations to take place in Pakistan via Skype.

In Germany, a severity scale is used to assess the extent of the disability caused to a claimant by their injury, and compensation is awarded accordingly. Emphasis is placed on having a high level of proof of the injury when a claim is made following a low-speed collision, and injuries are diagnosed using clear objective criteria. Finally, contingency fees are permitted only in cases where the claimant cannot afford to hire a lawyer, meaning that lawyers are less incentivised to pursue cases.

In Sweden, claims for whiplash injuries can be made only if symptoms appear and are assessed within three to four days of the road traffic accident. There is a table of predictable damages, as used in the UK for workplace personal injuries and in Norway, meaning that claims are limited to the type of injury caused, increasing the efficiency and transparency of the handling of claims. Spain also uses a table of predictable damages, and it requires medical practitioners diagnosing whiplash claims to have specific qualifications, like in France.

Some companies and organisations believe that establishing an objective test for whiplash is imperative in reaching the core of the current problems surrounding insurance fraud. That would filter exaggerated and fraudulent claims out of the claims process, ensuring a reduction in the number of whiplash claims. At the same time, it would ensure that those who have genuine claims were not prevented from making them.

I want to go a bit further than Europe and refer to a taskforce report from Quebec, which is in Canada, for those whose geography might be a bit rusty. It was produced in 2001 and provided an objective basis for diagnosing whiplash. It is a little bit old, but it has since been endorsed by several other Canadian provinces. The task force divided whiplash-associated disorders into five grades. At grade 0, no neck pain, stiffness or any physical signs are noticed. Grade 1 involves complaints of neck pain, stiffness or tenderness only, but no physical signs are noted by the examining physician. Grade 2 disorders indicate neck complaints, and the examining physician will find a decreased range of motion and point tenderness in the neck. Grade 3 encompasses neck complaints, plus neurological signs such as decreased deep tendon reflexes, weakness and sensory deficits. At grade 4, people may suffer neck complaints and fracture or dislocation, or injury to the spinal cord. As I said, severity scales are also used in Germany, where the number of bodily injury claims has dropped in line with the fall in road accidents.

I recognise that the Government of which I am a part have taken and are taking steps to address such matters. I welcome, for example, their insurance fraud taskforce, set up by my right hon. Friend the Member for Epsom and Ewell (Chris Grayling) in his former role, and I look forward to it reporting next month. I also welcome the fact that Her Majesty’s Treasury and the Ministry of Justice have commissioned a fundamental review of the regulation of claims management companies following concerns that CMCs fuel speculative unmeritorious claims for compensation and create a significant social nuisance through unsolicited calls and texts, misleading marketing and high charges.

However—I will state this clearly for the record—CMCs are only the tip of this fraudulent iceberg. The dodgy solicitors and law firms, some from the other side of the world, need to be investigated and shamed too. The consultation on the taskforce’s review closed last Friday, and I hope that its report will focus on customer outcomes, with fewer nuisance calls, and on having a new, more stringent and encompassing regulator, like the Financial Conduct Authority, to ensure consistency across the entire financial world and its markets.

I commend the City of London police’s model. The insurance fraud enforcement department was established in January 2012, when insurance fraud was reported to be costing £2 billion and the coalition Government were reducing police force budgets. It is a specialist police unit operated by City of London police and funded by the Association of British Insurers. Since its establishment, IFED has been responsible for more than 1,300 arrests and interviews under police caution, 172 convictions, 256 police cautions and 150 people being on bail to court or police, and 325 investigations are in progress, with new cases coming in every week. An example of IFED’s work was the bringing to justice of a Keighley pair, who were jailed for creating an insurance web of deception worth thousands of pounds. I will briefly summarise their deception. Those two fraudsters created insurance policies for people who did not exist and then submitted 300 false personal injury referrals worth £167,000 for made-up road accidents. Both have been jailed for four and half years

However, loopholes remain in the current personal injury referral fee ban and inducement laws. The regulation should include the data marketing companies, claimant solicitors and law firms, which are well known and easily identifiable, that are under the radar of the current regulator. We should outlaw insurance payments for whiplash injuries before proper medical examinations have taken place and concrete proof is provided. The key issue in the personal injury market is the level of financial incentives that still exist, despite the referral fee ban and the reduction in legal costs. It is still far too easy to make a claim for whiplash, and the rewards for doing so in terms of damages and legal costs have created and maintained the adverse behaviours that have prevailed since 1999 when no win, no fee was introduced in the UK. The small claims track for personal injury claims has been left unchanged for 16 years despite all other track limits increasing.

There is simply too much cash in the personal injury system, which is borne out by the continuing menace of the nuisance calls that we and our constituents receive and the fraudulent activity of some CMCs, so-called data marketing companies and some solicitor and law firms. Recent increases, which are way above current inflation rates, in the Judicial College’s suggested awards for minor injuries will just make matters worse. We need a more stringent and proportionate legal and regulatory regime that addresses the financial incentives in personal injury, cuts out the nuisance calls and ensures that all benefiting parties are regulated.

Although I am grateful to the Government for the steps they have taken to date, and to the Minister for taking the time to be here today to respond to this important debate, further reform is needed to keep insurance premiums for law-abiding motorists down. In addition to introducing a minimum threshold for simple whiplash claims and replacing cash compensation with rehabilitation, I would like to see, as a minimum, a ban on nuisance calls and better regulation of those who farm data, such as some solicitors, law firms, CMCs and marketing companies; the removal of all referral fees from the claims process; a limit of £5,000 on personal injury claims; a reduction in the limitation period for bringing minor whiplash claims from three years to 12 months after the accident; and the introduction of a table of predictive damages linked to a percentage of severity or disability to cut down unnecessary legal arguments. I note that France, Spain and Norway have fixed damages tariffs for whiplash-type injuries.

Once again, I thank the Minister and other colleagues for attending the debate, and I urge her to do everything that she can to deal with and limit fraudulent personal injury claims and to support the law-abiding motorists of Lincoln and the 30 million-plus drivers across the country. I believe that I have managed to outline a fair few potential processes that could be undertaken to reduce this blot on our road transport landscape. I hope the Minister and our friends in Government and the good offices of Whitehall will feel the same to a great degree.